American College of Physicians: Internal Medicine — Doctors for Adults ®


Medicare exploring changes in pay for chronic care

Demonstration projects could help internists finally be paid for managing the care of these complex patients

From the May ACP Observer, copyright 2004 by the American College of Physicians.

By Robert B. Doherty

According to a recent report from the Alliance for Health Reform, two-thirds of Medicare funds are spent on the 20% of beneficiaries who have five or more chronic conditions. Patients in this group see an average of 14 different physicians—and use almost 50 prescriptions—every year.

While a relatively small group of Medicare patients suffers from multiple chronic conditions, nearly 80% of Medicare beneficiaries have at least one chronic condition.

The proportion of Americans with one or more chronic conditions is expected to grow steadily over the next several decades, but Medicare's coverage and reimbursement policies give physicians little or no incentives to effectively manage and coordinate the care of these patients.

Paying for chronic care

One problem is that Medicare payments under the traditional fee-for-service program are paid on an episodic, per-procedure basis. Put simply, physicians are paid only for the procedure or visit they provide on a particular day that is associated with a specific episode of illness.

Medicare's general payment policy assumes that the physician work that is part of managing chronic illnesses is covered by the fee it pays for an office visit or consultation. Physicians usually cannot be reimbursed separately for developing and updating an initial care plan, making referrals to other specialists, monitoring and managing medications, and—except under limited circumstances—providing patient education or counseling services. As a result, physicians receive no extra payment for coordinating and managing a patient's health care over a period of time and across different health care settings.

In addition, Medicare pays physicians for the work that goes into providing each service, not on the outcomes of care. The bottom line is that physicians receive the same fee per procedure regardless of how well they control costs and improve the quality of care.

And because the government reimburses only individual health care professionals for covered services, Medicare's payment policies do not allow for reimbursement of care that is delivered by teams of health care professionals.

Demonstration projects and studies

The challenge of finding better ways to improve the care of patients with chronic illness is leading policymakers in Washington to explore alternatives to the traditional reimbursement models.

The Medicare Prescription Drug Improvement and Modernization Act of 2003, for example, calls for several studies to identify new ways to deliver and reimburse for care provided to those with chronic diseases. Section 721 of the law requires the Centers for Medicare and Medicaid Services (CMS) to sign three-year contracts with "chronic care improvement organizations" to develop, test and evaluate programs to improve the quality of care provided to patients with chronic diseases. The CMS had expected to release a request for proposals from chronic care improvement organizations earlier this spring.

The statute defines chronic care improvement organizations as "disease management organizations, health insurers, physician group practices, an integrated delivery system, or a consortium of such entities or any other legal entity" that the CMS deems appropriate to carry out a chronic care improvement program.

These organizations must agree to institute programs to boost quality of care, improve beneficiary satisfaction and "achieve targets for savings" to Medicare. Each chronic care improvement organization will be required to develop "care management plans" for targeted beneficiaries with chronic illnesses.

In addition, the law calls for organizations to use "decision support tools such as evidence-based practice guidelines" and "develop a clinical information database to track and monitor" each targeted beneficiary "across settings and to evaluate outcomes."

Each agreement with a chronic care improvement organization will specify "performance standards" that include clinical quality and spending targets. While the statute says that payments to the organization will be made on a per-member-per-month basis, it also allows the CMS to negotiate other types of reimbursement.

Initiatives for physicians

Although the CMS has said that it hopes physician groups will submit proposals for section 721 contracts, the statute's mandates regarding performance targets, data collection and reporting, as well as those on coordination and communication with providers, may disqualify most physician practices, particularly smaller organizations, from applying. Large disease management companies that have a relationship with an integrated health care system, such as an HMO or large multispecialty group practice, are more likely to qualify.

Another provision in the new Medicare law, however, may offer a more promising route for physicians who want to participate in chronic illness demonstration projects. Section 649 of the law establishes a three-year demonstration project to pay physicians in four sites across the United States to adapt and use health information technology and evidence-based outcome measures. The goal is to promote continuity of care and prevent or minimize chronic conditions.

According to a report from the IBM Center for Healthcare Management, physicians who treat a minimum number of beneficiaries, as specified by the CMS, may voluntarily participate in the demonstration projects, as long as they meet some basic conditions.

Physicians will have to meet certain "practice standards" that include the use of evidence-based guidelines. Physicians will also have to establish and maintain health information for beneficiaries and agree to gradually use health information technology to manage clinical care and electronically report clinical quality and outcomes data.

Under this section of the law, the CMS will pay an amount per beneficiary to each physician who meets or exceeds the required performance measures.

Physician-centered reforms

The emerging interest in finding better ways to improve quality and lower the costs of caring for chronically ill patients presents internists with both opportunities and challenges.

Demonstration projects could eventually lead to new payment methodologies that better reward internists for managing patients with complex and multiple chronic conditions. This has long been considered a core competency of internal medicine training and practice, but one that has been undervalued by payers like Medicare.

These initiatives, however, could also elevate the role of for-profit disease management companies in controlling costs at the expense of physician-centered health care teams. Financial incentives to reward physicians for effective management of chronic disease could easily become punitive measures, if physicians start getting paid less for failing to meet quality and cost targets. That might particularly be the case if demonstration projects are not adequately funded.

ACP is developing a new policy framework on performance measures and payment policies that will allow us to influence the design and implementation of chronic care demonstration projects. The College will help policymakers develop reimbursement and delivery models that will improve care for the chronically ill, especially for the 20% of Medicare beneficiaries with five or more chronic diseases.

Our approach is based on the premise that internists, working collaboratively with other health care professionals, are highly qualified to manage and improve medical care for patients with chronic disease. We will emphasize, however, that Medicare needs to support physicians by providing the reimbursement incentives and access to technology required to help them do the best job possible.

Robert B. Doherty is ACP's Senior Vice President for Governmental Affairs and Public Policy.


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